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HELICOPTERS Builders are reeling as parts prices and lead times soar

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Streamlining the production process might be the long-term solution helicopter makers need to overcome the myriad obstacles in getting their aircraft to market.

Bell Helicopter Textron, a Fort Worth, Texas, subsidiary of Textron Inc., is turning to partnerships with suppliers as a way to speed up the time between orders and deliveries.

"We're looking at leaning out and streamlining our supply base—reducing the number of suppliers we have and changing the relationship from our supplier to our partner," a company spokesman said. We want to do more sharing in terms of our needs and their capabilities as suppliers. We want to work with the supply chain so they can produce more and we can produce more."

Any potential solution must start with aluminum and titanium producers, who contribute in a big way to the bottleneck due to the lack of raw materials needed to produce helicopters. This backlog is creating a lag time of 18 to 24 months between order entry and delivery of the finished product to customers.

"Nobody can produce at the pace needed," the Bell spokesman said. "We have increased our production rates every year for the past several years but there are lead times for everything, so we can't ramp up production as much as we would like, or based on demand, because we need to wait up to two years for some parts."

Outside of wait times, the rising cost of raw materials will continue to plague helicopter producers as they struggle to keep pace with increasing demand for offshore oil activities.

"Not just in aluminum, but the price of all metals are rising and this has affected our production costs," the spokesman said. "Also, because of the overall boom in aerospace—with Boeing's 787 and civilian aircraft—all of this is making raw materials harder to come by. And when less material is available, you have to pay more to get what you need."

Bell's revenue, split evenly between military and commercial helicopters, is expected to double in the next five years on surging demand, although it declined to provide exact figures. Bell's civilian helicopter market share averaged around 30 percent between 1992 and 1998, said Richard Aboulafia, vice president of aerospace and defense industry research analysis firm Teal Group Corp. That share fell to about 17 percent between 2002 to 2006, but growth in civilian programs in the next few years is expected to push the share to more than 21.5 percent by 2011.

CHC Helicopter Corp., Richmond, British Columbia, faces similar issues in its efforts to provide transportation in emerging offshore oil regions. As oil companies stretch their exploration efforts, the largest helicopter service provider to the oil and gas industry—with aircraft operating in more than 30 countries around the globe—is set to see its order books overflow.

"Exploration and extraction is getting more expensive as operators look to more distant oilfields and mine sites to meet growing raw material needs," Aboulafia said. "CHC Helicopter, the largest helicopter service supplier to the oil and gas industry, serves as an appropriate bellwether for this segment's prosperity."

Revenue from helicopter transportation services for the oil and gas industry accounted for 88 percent of CHC's total revenue of nearly Canadian $1.15 billion ($1.09 billion) during the fiscal year ended April 30, up from 87 percent of total revenue of C$997.1 million the previous year.

The company cited continued fleet growth and expansion for the 15.2-percent year-on-year revenue gain, the highest annual revenue figure in the company's history.

In late June, CHC was awarded two major contracts—one extending over five years and the other seven years—by Norway's Statoil ASA for the provision of helicopter services in the Norwegian Sea. Valued at approximately C$1.1 billion ($1.05 billion), the company said it believed it was the largest bundle of helicopter service contracts ever awarded.

In early July, the company also renewed two contracts with Statoil and GDF Production Nederland BV, Zoetermeer, the Netherlands, for services in the North Sea that are expected to generate revenue of up to C$170 million ($161.7 million) and C$55 million ($74.6 million), respectively, over the five-year extension periods.

CHC currently operates about 250 helicopters, and has plans to add another 70 to its fleet within five years. In response to intense customer demand, the company added 40 aircraft to its fleet in fiscal 2007, although this was offset by the sale, disposal or return to lessors of 18 aircraft, resulting in a net increase of 22 aircraft.

The company, which is the largest operator in the North Sea—one of the biggest oil-producing regions in the world—also has expanded to West Africa, South America and various parts of Asia.

Both Bell and CHC will face new production challenges going forward as offshore oil platforms move further offshore, demanding increased range capabilities and new technologies to service drilling operations.

Despite analyst views that growth in the offshore oil drilling industry has peaked, Bell is gearing up for higher, and more specialized, demand. "We don't see a drop-off in offshore, but maybe a change in the type of aircraft they need. As the platforms move further and further out, the range of the helicopter has to increase, so you have to have a larger helicopter to service those rigs," the Bell spokesman said. While the company declined to discuss specific material changes being explored, it acknowledged that composites could play a larger role in the bigger, lighter helicopters.

One thing is certain, though—fabricating larger helicopters will mean higher production costs and will result in an even tighter squeeze on the availability of raw materials, boosting pressure on helicopter companies to find a solution to the issue of long lead times for parts.

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